Raising Money in a Soft Economy: 7 Tips to Fund Your Great Idea
With the credit market still tied up tighter than Houdini, access to capital by traditional means (read: your bank) is tough to come by. Here are some tips to help you entrepreneurs out there raise money – without going to those suits at your bank:
Tap your network
Raising angel money is all about who you know. Networking with other start-ups, mentors, old college professors…these contacts can lead to potential investors in your new company. While a bank office might laugh at your Facebook/Digg/YouTube gadget, a savvy angel might just see what you see: a future Yahoo! or Google property…
Have a business plan that’s not just in your head
A well-written business plan is important to some investors. Some won’t care if it’s written on a napkin or just in your head, but many will want to see a well thought-out, written down plan of what you intend to do with their money. Even though your plan might go out the window as your company grows, it’s important to have one to cover all your bases.
Don’t focus on the financials
When pitching VC’s, don’t spend an hour going over every detail of your pro-forma income statement. They know numbers 10x better than you do, and they will rip you to shreds. Focus on what you know best: your idea or product. Emphasize the market potential of your idea, and let the suits crunch the numbers. The numbers you should know? Your burn rate. If you can’t tell an investor how much cash you expect to burn each month, you’ll be in for quite the grilling.
Clean up your (personal) credit
While it’s best to not personally guarantee business loans, sometimes it’s just not possible to get business credit without a personal guarantee. This means your personal credit score needs to be at least in the mid to high 600’s to have any chance of approval. Pay down any credit cards you can, and look at social lending as a way to get the best rate for a consolidation loan. When you do apply for credit, take a shotgun approach and send in multiple applications within a short period of time to improve your chances.
Establish business credit
Business credit, while similar to personal credit, must be established completely separately from your personal credit file. Credit is obtained under your business’ EIN number. Gas credit cards are a good first step (and easy to get approved for) in establishing your credit. Also, make sure you get a DUNS number, and check your Experian business score (which ranges from 0 to 100). By starting to establish your business credit as soon as possible, you’ll be well positioned down the road should you ever want to apply for that bank loan.
Raise money before you need it
The best time to raise money is when it’s not absolutely needed. If your business is already profitable and you just want to take it to the next level, that’s a great time to raise money. When you’re broke, losing money, and have vendors calling you for payments…that’s the worst time to raise money.
Always be thrifty (and always be closing)
Investors or banks want to see that you’re not wasteful with the money you already have before they give you more. Pick up cheap office furniture off craigslist. Keep your salary reasonable, nothing extravagant (too low and investors will nitpick, so be careful there). Don’t get office space until you absolutely need it; for many start-ups your basement or local coffee shop will do just fine.
And always be closing!
Thursday, April 10th, 2008 at 1:38 pm